Existing evidence suggests that returns to entrepreneurship are low. In
particular, Hamilton (2000) claims that entrepreneurs face a stream of future median
earnings far below what they could earn as employees. These findings have been
associated with non-pecuniary benefits, and more generally with heterogeneity in
preferences, rationality or beliefs. In this paper I challenge this view. I extend the
data to
include younger and older workers and entrepreneurs. I show that the
differential in
earnings is in fact U-shaped, with entrepreneurs earning more than wage
workers both
early and late in their lives. I argue that the difference in the
earnings profile
can be rationalized in the context of a life-cycle model of occupational
choice
where agents are fully informed, face no uncertainty, are fully rational, and
ex-ante identical. I estimate this model and show that the lifetime
returns to
entrepreneurship can in fact be identical to those of being a wage worker.